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December 2021 Tax Investigation Round Up

December's round up of the latest tax investigation news and cases:

  • HMRC collects £100bn more tax than the previous year
  • £35.8bn tax underpayment last year by big businesses
  • HMRC estimates £500m tax lost to avoidance schemes

HMRC collects £100bn more tax than the previous year

Recent data reports from HMRC show that between the months of April and October 2021, HMRC collected £392bn in taxes, £99.8bn more that the same period in 2020.

Tax receipts from income tax, national insurance, capital gains and apprenticeship levy reached £210.4bn which is £31.1bn higher than the same time frame last year.

Receipts from PAYE income tax and National Insurance contributions were recorded at £192.4bn this is £20.5bn higher than last year. Paid employees increased by 3.6% on last year, which is a rise of one million employees, and median monthly pay escalated 5.2% for the same time period of last year. These figures show six months of year on year growth since March 2020 for paid employees.

HMRC has collected a total of £92.4bn in VAT so far this year, £51bn more than last year. Corporation tax, bank levy, bank surcharge, petroleum revenue tax and diverted profits tax carried in £35bn to HMRC, £7.4bn higher than last year.

Inheritance tax also saw an increase in the amount collected at £3.6bn, 20% more than last year’s figures.

Speaking about rising inheritance tax receipts Andrew Gillett, head of wealth management advice at BRI Wealth Management, states: "This has certainly been the trend over the last few years and not a surprise bearing in mind the rise in equity and house prices since the lows at the start of the pandemic coupled with the freezing of allowances.

"We were surprised to not see any legislative changes in the recent Budget when you consider the government continues to need an uplift in revenue. It is likely more families will pay inheritance tax in the coming years due to the freezing of allowances until 2026 and there may be further reforms to come.

"Pre the pandemic, there were several reports published by the Office of Tax Simplification and an All-Party Parliamentary Group suggesting that there could be some reforms to inheritance tax including amendments to lifetime gifts, the interaction of capital gains tax with other allowances such as business and agricultural property relief, and also the exemptions. We think it is likely that we will see reform; it is just difficult to know when."

£35.8bn tax underpayment last year by big businesses

For last year, underpaid tax from big businesses was estimated at £35.8bn, up by £1bn on the year before. According to HMRC’s Large Business Directorate, this figure relates to tax under consideration covering the UK’s 2,000 largest businesses.

Analysis shown by law firm Pinset Masons shows that this is a £1bn increase in the tax year 2020-21 from £34.8bn recorded in the year before, rising for the last six years consecutively.

The figure consists of the £8.1bn in tax that is supposed to have been avoided through transfer pricing, allowing multinationals to allocate costs and income between different countries.

A further £1.2bn is believed to have been a consequence of profit shifting. Another major consideration to the rise of underpaid tax is due to suspected underpaid employment taxes, increasing 49% to £1.3bn in the past year in comparison to £900m the year before.

Pinsent Masons believes that businesses are underpaying their National Insurance contributions (NICs) by classifying employees as self-employed contractors.

Steven Porter, Pinsent Masons, explains: "Multinationals underpaying tax is one of the biggest areas of concern for HMRC. The biggest businesses can expect to see HMRC continue to toughen its stance on it.

"The Large Business Directorate is particularly effective at bringing in the underpaid tax it identifies. It prefers to do this through negotiation initially but it is certainly not afraid to move to large-scale investigations and litigation if it has to."

Porter continued: "Issues like transfer pricing and base erosion remain firmly on the political agenda. From 2023 governments will have another tool to increase their tax take from multinational businesses when the new OECD rules come into force. That could see the suspected underpaid tax figure finally start to drop after rising for many years in a row."

HMRC estimates £500m tax lost to avoidance schemes

Latest figures show that in tax years 2019-20, £1.5bn was lost to avoidance with £500m related to tax avoidance schemes. The avoidance is made up of unpaid income tax, National Insurance contributions and capital gains tax. Findings revealed that £500m was lost to these schemes.

Reports from the tax authority show that 28,000 individuals and 1,000 employers used avoidance schemes in 2019-20, a substantial drop from the peak figures of 41,000 individuals reported in 2017-18.

Such schemes were disguised in remuneration schemes, making taxable money someone receives for work look like non taxable money such as loans, grants or credit facilities.

The data reports that 32% of avoidance cases were aged 41-50, 26% were between 51-60, and 23% fell into the 31-40 age bracket. Individuals over the age of 70 only represented 1% of the cases. Most reported avoidance schemes were claiming that they had an income of less than £50,000 which is similar to last year's findings.

HMRC managed to bring in £36.9bn of extra tax from investigating avoidance, evasion, and other non compliance over the last taxable year.

Director of counter-avoidance at HMRC, Mary Aiston, declares: "We continue to use our data to identify people who might have entered tax avoidance schemes so we can alert them to the risks and help them exit these schemes as quickly as possible.

"To further squeeze the hardcore of promoters, Finance Act 2021 enhanced our existing anti-avoidance regimes to enable HMRC to take quicker action against promoters. The government has also consulted on and will be legislating in Finance Bill 2021-22, a further package of measures to build on these changes, to ensure promoters face stronger sanctions more quickly.

"Whilst we are working hard to tackle the promoters who sell these schemes, it remains the case that taxpayers are personally responsible for paying the right amount of tax.

"The vast majority of taxpayers don’t get involved in tax avoidance, but where they do, we take a risk-based approach to opening enquiries, to secure the tax that should have been paid."

HMRC have found that around 20 to 30 organisations are behind most of the tax avoidance schemes that are marketed to the public. Since last year’s investigations, organisations have significantly dropped their activity, however, new promoters have started to try and market to the public in their place.

In November 2020, the Advertising Standards Authority clearly stated what is allowed to be advertised on promoters websites. Following this, 11 websites have been permanently removed, 2 were referred to the Advertising Standards Authority, and 5 have changed their advertising to comply with the notice. A further 8 were removed after facing further challenges.

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